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Introduction to transfer pricing in Slovenia
Transfer pricing rules
  • The Slovenian transfer pricing (TP) legislation is defined in Article 382 of Tax Procedure Act, Article 16-19 of Corporate Income Tax Act, Rules on transfer prices, Rules on the recognised rate of interest, and is based on provisions of OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (OECD Guidelines).

     

  • The TP rules apply to Slovenian taxpayers, foreign or domestic related parties. Transfer pricing documentation is mandatory for Slovene taxpayers doing business with foreign related parties. In case, Slovene taxpayers are doing business only with domestic parties, they are not required to prepare TP documentation. However, they should provide information upon a Slovene Tax Authorities’ request (STA).

     

  • TP documentation must be prepared by submission of corporate income tax return and for each financial year in which a taxpayer had transactions with related parties. TP documentation is submitted to STA only upon request and has to be provided immediately. In case the immediate submission is not possible, STA defines a deadline for submission, which should not be less than 30 or more than 90 days.

     

  • Country by Country Reporting (CbCR) has been implemented in Slovenia for larger groups (over €750 million).

OECD guidance
  • Slovenian transfer pricing rules follow the OECD Guidelines, which are in some part incorporated into Slovenian legislation and used for interpretation of the arm’s length principle.

  • STA has issued a document regarding supervision of transfer pricing in 2017, containing TP schemes and examples.

Transfer pricing methods
  • When selecting the most appropriate method, the method should be selected on a transaction by transaction basis, providing the most reliable measure of an arm’s length result. The current OECD methods, namely the comparable uncontrolled price, resale price, cost plus, transactional net margin, and profit split methods are all accepted but the method used must be in line with the functional and risk profile of the entity.

  • Any of the above-mentioned OECD methods or a combination thereof may be used; however, the comparable uncontrolled price method has priority over other methods.

Self-assessment
  • The taxpayer should adequately mark whether it is doing business with related parties and whether it receives or grants loans or shows interest with related parties in its yearly corporate income tax return.

  • A taxpayer’s tax base should not be adjusted for transactions performed with related parties residents, unless one of the residents:

    • has a tax loss carried forward

    • pays tax at the rate of 0% or at a specially determined rate lower than the general rate

    • is exempt from paying tax.

Transfer pricing documentation
Preparation of transfer pricing documentation
  • Transfer pricing documentation has to be prepared in accordance with Slovene tax legislation and TP rules, which are based on OECD transfer pricing documentation model.

  • TP documentation has to be prepared by the submission date of corporate income tax.

  • TP documentation has to be submitted to STA only upon request.

  • Slovenia has also introduced CbCR (Country by Country Reporting) regulations which are effective for fiscal years from 1 January 2016 onwards for groups with revenues over €750 million.

    - In case Master file is not prepared in Slovenian, it should be translated into English upon STA’s request within 60 days.

    - TP documentation consists of:
    • Master file
    • Local file

Master and local file
  • According to Slovenian legislation, transfer pricing documentation should consist of Master file and Local file. Transfer pricing documentation must include data relating to transactions between related parties, information on the performance of the transaction comparability analysis, information on the nature of assets and services, data on the performed functional analysis, information on contract terms, etc. The main purpose of the taxpayer's transfer pricing documentation is to prove that the prices between related parties are in accordance with the arm’s length principle.

  • TP documentation has to be kept for ten years after the end of the financial year to which it relates.

Some risk factors for challenge
  • High risk business models include manufacturing and R&D

  • Limited risk business models include distributors

  • Persistent losses in a 'low risk' entity

  • Licensing payments to low tax jurisdictions.

  • Business restructurings or changes in transfer pricing model.

Penalties
  • In case a taxpayer does not have in place a TP documentation or does not provide STA with the requested documentation, it can be penalized with a fine ranging from €1,200 to €15,000, or €3,200 to €30,000 in case the company is a medium-sized or large company. The representative of the company is also penalized with fine ranging from €600 to €4,000, or €800 to €4,000 in case the company is medium-sized or large.

  • The penalties in the same amount apply also to non-compliance with CbCR and notification requirements.

Economic analysis and how to demonstrate an arm’s length result
  • Local comparable companies are preferred, however, also regional comparable companies are accepted.

  • In case databases are used in order to find suitable comparables, certain conditions have to be taken into consideration when making comparables’ search (eg EBIT in all years should be zero or positive - no losses allowed, etc.). In case the benchmark is used on a group level, it should be reviewed by local advisors in order to check whether it complies with Slovene requirements.

  • In Slovenia, the safe harbour rule for interest on loans can be applied, which is defined in Rules on recognized interest rate.

Advance Pricing Agreements (APAs), dispute avoidance and resolution
  • APAs are written agreements between a business and STA to govern the appropriate transfer pricing method for a forward-looking period.

  • In Slovenia, no preference is specified with regard to multilateral and unilateral APAs, however, OECD guidelines point to much greater effectiveness of multilateral agreements.

  • STA charges €15,000 for the agreement process and €5,000 for the extension of agreement validity.

  • If the agreement cannot be achieved for reasons other than those of the taxpayer, a flat-rate amount of €5,000 shall be refunded to the taxpayer.

  • STA with the participation of the taxpayer in the monitoring phase of the implementation of the agreement, examines whether the methodology set out in the agreement is appropriate due to the deviation in each critical assumption. If the methodology is not appropriate, the agreement shall be amended in accordance with the Slovenian legislation.

Exemptions
  • There are exemptions from transfer pricing documentation rules for domestic companies doing business with domestic parties. Such companies are not required to prepare transfer pricing documentation, however upon STA’s request, the taxpayer should provide all requested information in relation to the setting of comparable market prices.
Related developments
Tax authorities and taxpayer behaviour
  • The STA has issued a document listing the schemes and the examples with regard to transfer pricing, which may result in improving the standards of transfer pricing documentation.
COVID-19
  • It is likely that the consequences of COVID-19 will have a significant impact on transfer pricing. Therefore it is necessary, among other things, to consider the existing transfer pricing policy and model, which reflects both economic and business challenges, and to adapt in a way that is in line with the arm’s length principle.

For further information on transfer pricing in Slovenia please contact:

Vesna Radovanović Ahčin.png

Vesna Radovanović Ahčin, LL.M.
T +386 1 434 18 00
E vesna.ahcin@si.gt.com